Segmented Trading Markets: Competition, Fees, and Tax Policies

We study competition among segmented trading venues in which the venues differ in technology (fast vs. slow). Technological differentiation leads to higher trading fees, but has an ambiguous impact on trading volumes. Improvements in the slow venue increases trading volumes, whereas improvements in the fast venue might increase or decrease it. We also study the welfare effect of tax policies. In equilibrium, the tax rate to optimize tax revenue depends only on trader preferences, and is thus independent of the venue competition. With non-constant welfare weights the aggregate welfare can be maximized at nontrivial tax rates.

Keywords: Segmented markets. Digital economy. Crypto market. Competition.

JEL Classification: C7, D86, G2, L13, L86.

Suggested Citation: Suggested Citation

Back, Kerry and Celebi, Oguzhan and Kakhbod, Ali and Reppen, Anders, Segmented Trading Markets: Competition, Fees, and Tax Policies (May 1, 2022). Boston University Questrom School of Business Research Paper No. 4119978, Available at SSRN: https://ssrn.com/abstract=4119978 or http://dx.doi.org/10.2139/ssrn.4119978